RETIREMENT SAVINGS

Between a financial product and a supplementary

pension, a costly scheme with unclear objectives

Public thematic report

November 2024

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Executive Summary

Retirement savings, also known as "supplementary pensions" or "funded pensions",

enable you to save during your working life to supplement the sums paid into compulsory

pension schemes. In principle, the savings are frozen until retirement, with the possibility of

early release being limited by the regulations. It was built up in stages with the creation of

various products, initially aimed at specific groups (civil servants, local elected representatives,

the self-employed, the military), then extended to other categories of the population with the

creation of the

Plan d'Epargne Retraite Populaire

(PERP) and collective products offered within

companies.

Supported by a tax incentive scheme, retirement savings have grown significantly in

recent years, with annual contributions of €18.5 billion in 2022, assets of €292.7 billion at the

end of 2023 according to the French Treasury, and more than 16 million contracts. Some of

these assets are held by new entities, the

Fonds de retraite professionnelle supplémentaire

(FRPS), a kind of "French-style pension fund" resulting from the transposition into French law

of the European IORP II Directive

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on supplementary pension schemes.

Although France has a compulsory pay-as-you-go pension system, retirement savings

account for a modest proportion of total financial savings (4.6 % in 2022), of which it represents

a subset made up partly of life insurance (insurance-based retirement savings) and partly of

shares in collective investment schemes (securities-based retirement savings). Strongly

influenced by the macro-economic determinants of financial savings, retirement savings also

has its own dynamic, noticeable in particular since 2019, the year in which the law of 22 May

2019 on the growth and transformation of businesses (known as the Pacte law) was passed,

reforming its framework and systems.

Four years after the changes introduced by the Pacte Act, and at a time when public

finances are under severe pressure, the Cour des Comptes has deemed it useful to carry out

an assessment of the retirement savings scheme. In particular, it drew on data from the French

Treasury (DGT) and the Directorate for Research, Studies, Evaluation and Statistics (Drees).

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European Directive IORP II (Institutions of Occupational Retirement Provisions) of 14 December 2016 on the

activities and supervision of institutions for occupational retirement provision (IORPs). It aims to limit the activity of

IORPs to retirement benefits and related activities so that, in the event of bankruptcy of the sponsoring company,

the assets of the IORP are safeguarded in the interests of members and beneficiaries.

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The transition before/after the Pacte Act

Source: French Treasury, 2021

In this report, it provides previously unpublished data and information, obtained in

particular through the use of tax databases. In particular, it should be noted that the tax and

social security deductions available for retirement savings represent a significant cost to the

public purse, which this evaluation estimates at €1.8 billion in 2022, without taking into account

compulsory group retirement savings

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.

Has the Pacte Act encouraged the development of retirement savings, and

at what cost to public finances?

The weight of funded pensions in the French pension system remains modest: in

2022, pension savings accounted for just 5.1 % of pension contributions and 2.3 % of benefits.

Around 13 % of working people have a company pension savings plan (PER) and 10 % have

an individual product, although it is possible to have both, and just over one in two people had

contributed in 2022. This system, which makes it possible to significantly supplement pensions

from compulsory pension schemes, is therefore far from widespread.

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These are retirement savings plans offered by certain companies, which employees are obliged to join if they

are in the category covered by the scheme.

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Share of supplementary pensions

Source: DREES, 2024

After running out of steam in the 2010s, retirement savings schemes have received a

fresh boost since 2019, which can be credited to the simplification and clarification that the

Pacte Act introduced into the available products and their operating rules. It replaced the old

contracts, whose names and rules varied depending on the target audience, with a single

product, the pension savings plan (PER). Available to individuals (PERIN) or to groups of

employees on a compulsory (PEROB) or optional (PERCOL) basis, the PER has encouraged

the development of retirement savings, particularly for individuals, marked by an increase in

the number of members and contributors

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and an increase in funds under management.

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A member may hold a policy but not make any contributions.

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Change in retirement savings assets under management by old and new products and

amount transferred

Source: French Treasury

The Pacte Act has also helped to standardise the rules governing contracts. The tax and

social security rules, which allow savings to be deducted from taxable income up to a certain

limit, have been harmonised. Savers are also better protected thanks to the default "guided

management" rule, which means that investments become less and less risky as the

policyholder approaches retirement age.

The option of withdrawing capital rather than an annuity has been expanded, and the

possibilities for early withdrawal have been extended. The aim of these provisions is to make

this investment more attractive to households, but they also raise the question of the purposes

assigned to retirement savings schemes by the Pacte Act. The latter has had the effect of

making supplementary pensions closer to other savings products, in particular life insurance,

by increasing possibilities for lump-sum withdrawals. However, this approach, which focuses

more on savings than on retirement, is consistent with the aims of the Pacte Act, which are to

encourage households to build up long-term savings in order to boost long-term investment in

the productive economy.

Although supplementary pension contributions can be deducted from taxable income,

since 2011 they have no longer been considered as tax expenditure, since the benefits, paid

out in the form of an annuity or capital sum, are taxed when they are withdrawn from the

scheme. However, this evaluation estimates the annual cost of this tax system at a minimum

of €1.8 billion each year, including the exemption from social security contributions for

employee savings, but without taking into account the costs associated with compulsory

company pension contracts, which cannot be quantified. It should also be noted that there is a

discrepancy between the number of members and contributors to retirement savings contracts

and the number of taxpayers actually benefiting from tax deductions in this respect, which is

lower.

The French funded retirement savings system is therefore conceived and understood by

both the authorities and its beneficiaries as a financial tool rather than a complement to

compulsory retirement schemes, and its place in relation to the latter has never been the

subject of in-depth consideration. It also represents a high cost for the State, given the

associated tax benefits.

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Has the Pacte Act encouraged a wider access to retirement savings

among the French population?

Data on the distribution of retirement savings in the population is either sparse or

non- existent. Government departments only monitor these schemes and their beneficiaries to

a very limited extent. The Directorate General of the Treasury, which initiated and oversees

the application of the Pacte Act, reports only on changes in assets under management and the

number of subscribers to the new products.

France Stratégie

, which is responsible for

monitoring the Pacte Act, produces a brief annual report on the effects of the new legislative

provisions. The Directorate for Research, Studies, Evaluation and Statistics (Drees) publishes

an in-depth annual study on the behaviour of savers and beneficiaries but does not have the

data to study their profile in terms of income or assets. Insee publishes data on household

wealth, distinguishing retirement savings from life insurance and other financial savings

vehicles, but on the basis of old data and with no indication of the amounts contributed, making

it impossible to distinguish between old and new products resulting from the Pacte Act.

Based on these publications and tax data, which do not cover all beneficiaries, it is

nevertheless possible to characterise the distribution of retirement savings in the population.

The breakdown of the 5.536 million members of individual retirement savings schemes and

the 10.5 million members of company group contracts shows that these schemes tend to be

reserved for wealthier socio-professional categories, older savers and taxpayers with high

rates of tax. The new products also seem to reinforce these characteristics: their holders are

subject to higher tax rates than holders of the old products. As far as collective products are

concerned, the type of company in which the saver works remains a determining factor, as the

possibility of access to a collective PER (PERCOL) increases with the size of the company.

Age breakdown of members by product

Source: DREES, 2024

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Breakdown of marginal tax rates among taxpayers and savers filing tax returns

Source: Court of Accounts based on POTE 2022 files

While half of all applications for annual tax allowances are for less than €1,700 for

individual PERs (PERINs), some are for much higher amounts. The option of carrying forward

the unused portion of the deduction limit to the following three years and benefiting from the

spouse's limit opens up a wide range of possibilities for taxpayers seeking to optimise their tax

situation. It would be advisable to tighten up this system to avoid certain excesses which divert

the schemes from their function of retirement preparation.

At the same time, there is still room for improvement in terms of the transparency of

retirement savings management fees, in the hope that these will become less costly for savers.

This is particularly important for individual savers who are not in a position to negotiate the

rates imposed, and part of their tax advantage is ultimately captured by the accumulated

charges levied on their investment.

Examination of the distribution of products among the population therefore confirms that

retirement savings, while making it possible to supplement the retirement of those who benefit

from low replacement rates, is first and foremost an investment and savings instrument, whose

advantageous tax treatment enables wealthy and relatively elderly savers to benefit from tax

advantages.

Does the development of retirement savings encourage the financing of

productive investment?

Retirement savings investments are difficult to distinguish from employee savings and

life insurance. It is therefore not easy to measure the progress made since the statement in

the explanatory memorandum to the Pacte Act that the majority of retirement savings are

invested in assets that are ill-suited to long-term investment, whether sovereign debt or

corporate debt.

However, the Court's analysis by product, based on data provided by

France Assureurs

,

shows a higher exposure to risk for retirement savings in the process of being built up, as well

as for PERs. The most significant equity investments are made in the individual PER (with an

equity component of around 30 %) and the mandatory company PER, as well as in the

mandatory retirement contract for executives and managers (Article 39 of the French general

tax code). The proportion of portfolios made up of interest-rate products ranges from

51 % (individual PER) to 64 % (compulsory pension contracts under Article 83 of the French

general tax code and former individual products).

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Comparison of life insurance and insurance-based retirement savings investments at

the end of 2022

Source: France Assureurs. Court of Accounts Extrapolation

The equity weighting of investments made in the employee savings funds to which the

collective company savings plans contribute is 24 % (32 % taking into account the equity

portion of diversified investments), without it being possible to distinguish between what

corresponds to company savings plans (PEE) or collective retirement savings plans.

Breakdown of diversified employee savings funds by asset class

Source: AFG

A few years after the adoption of the Pacte Act, one of the aims of which was to

encourage investment in the productive economy, the investments made in insurance-based

retirement savings are still predominantly in euro funds and, in the case of securities account

retirement savings, are heavily weighted in fixed-income products. The propensity to take risk

in equities could be accentuated by a stronger invitation to invest in SMEs/ETIs, as the Green

Industry Act of October 2023 encourages.